EU/Competition – Legal Update
Status as of: 6 July 2022
The decision-making practice of the European Commission in proceedings concerning abuse of a dominant market position often fails to sustain examination by the European Courts. Chip producer and Apple supplier Qualcomm is the latest enterprise to experience this – for the time being.
By judgment of 15 June 2022 (case no. T-235/18) (Link), the General Court of the EU (EGC) annulled a 2018 decision in which the Commission had imposed a fine of EUR 997 million on Qualcomm for infringing Article 102 AEUV by means of incentive payments (Link).
In Luxembourg, Qualcomm had appealed the decision raising several complaints. Following Qualcomm’s arguments, the EGC found infringements of several procedural rules as well as an insufficient and erroneous assessment of evidence, and set aside the Commission decision.
According to the EGC, the Commission violated procedural rules because the files which Qualcomm had been granted access to were incomplete. In addition, the EGC held that the Commission violated procedural rules by originally basing its allegations on an analysis of the markets for both UMTS chipsets and LTE chipsets, while focussing only on LTE chipsets in the final decision without granting Qualcomm the possibility to comment on the modified scope of the analysis.
Beyond that, the Court recognised substantive violations by the Commission. When examining the question of an abuse of a dominant position, the Commission had failed to take all relevant circumstances into account. Furthermore, the Court held that the facts established by the Commission did not support the allegations brought by the Commission. Finally, according to the Court, the Commission decision is ambiguous in that it is unclear for which Apple products respectively which iPad series Qualcomm had abusively influenced Apple.
The Commission may appeal to European Court of Justice (ECJ). Given the clear position taken by EGC, it remains to be seen whether the Commission will further pursue this matter.
The prohibition of abuse of a dominant market position continues to gain importance. According to the Commission, a relevant abuse of a dominant market position can also be found in form of an anticompetitive disparagement (Link).
The EU’s antitrust authority suspects pharmaceutical company Vifor Pharma of such behaviour and has therefore opened an investigation.
Vifor Pharma distributes the high-dose intravenous iron medicine “Ferinject”. Now, the Commission has disclosed that it follows indications that, for several years, Vifor Pharma has conducted a campaign based on misleading information and aimed at disparaging the competing product “Monofer” distributed by its (potentially sole) competitor Pharmacosmos. According to the Commission’s preliminary assessment, by spreading misleading information regarding the security of “Monofer”, Vifor Pharma could have caused a delay in the market introduction of that medicine.
If the Commission should find the allegation to be founded, Vifor Pharma could face fines and compensation claims because of an abuse of a dominant position within the scope of Article 102 TFEU.
Although abuses of a dominant position are gaining importance, companies usually cannot enforce the initiation of antitrust proceedings. The ECJ has again emphasised this principle in a judgment of 30 June 2022, in which it found that the Commission had the right to not initiate antitrust proceedings against the window manufacturer Velux.
The plaintiff, Polish window manufacturer Fakro, accused Velux of having abused its dominant position on the markets for roof windows in the European Union, Switzerland, Norway, Russia, and Ukraine for many years by different means in order to seal off those markets to Fakro’s detriment. The Polish competition authority had refused to initiate proceedings on the grounds that the matter had a European dimension. When Fakro then called upon the European Commission, the Commission took the position that an infringement of Article 102 TFEU was unlikely and therefore proceedings would be disproportionate. The EGC (case no. T-515/18) and now the ECJ as well (case no. C-149/21) upheld the Commission’s decision.
In doing so, the ECJ pointed out the following:
- When assessing the question whether Union interests justify the initiation of proceedings, the Commission is neither limited to a certain number of criteria it can take into account, nor is it obligated to exclusively base its assessment on certain criteria.
- The decision of a national competition authority based on national legislation not to initiate an investigation does not result in an obligation of the Commission to initiate antitrust proceedings. Where national legislation leaves gaps in legal protection, it would be – pursuant to Article 19 para. 1 subpara. 2 TFEU – the Member States’ task to close such gaps. The Commission enjoys a wide margin of discretion regarding the initiation of proceedings even if a matter concerns the territory of several Member States and other competition authorities have already declared to not act on it.
- Finally, Fakro would have been free to claim damages from Velux for the alleged violations before Member State courts.
In accordance with the Paris Agreement, it is the EU’s ambition to achieve climate-neutrality by 2050. In this regard, the aviation sector faces special challenges, as decarbonisation measures in this hard-to-abate sector fail to pick up speed. Therefore, in June 2022, the Commission founded an alliance that will combine efforts of private and public actors within the aviation sector regarding the introduction of zero-emission aircraft (Link).
The alliance will be dedicated to the development of hydrogen-powered and electric aircraft. The Commission expects CO2 emission savings in the aviation sector of up to 30-50 % compared to 2020, as well as long-term innovation advantages for European undertakings due to the development of such aircraft. Furthermore, the Commission projects a potential sales volume of up to 26.000 zero-emission aircraft until 2050 (total value: EUR 5 trillion). According to the Commission’s projections, the increase in zero-emission aircraft would not only positively affect aviation itself, but also aviation infrastructure.
Non-competition clauses in distribution agreements are especially prone to antitrust risks. In a case recently published, the German Federal Cartel Office (FCO) has established retrospectively that non-competition clauses which the enterprise STIHL had imposed on some of its distributers until the end of 2021 violated antitrust laws. What is special here, is that the FCO did not impose any fines.
The portfolio of STIHL mainly includes hand-operated motor tools. In Germany, STIHL distributes those products mainly indirectly via distribution partnerships with specialist stores. Within its distribution system, STIHL used to differentiate between regular “STIHL specialist stores” and “STIHL service stores”. The latter enjoyed better distribution conditions while in return they had to agree to non-competition clause, which prohibited STIHL service stores from distributing competing products to a wide range of products within the STIHL portfolio.
According to the FCO, that non-competition clause caused a noticeable restriction of competition within the meaning of Article 101 (1) TFEU and Section 1 of the German Act against Restraints of Competition. Given the nationwide network of STIHL service stores, the non-competition clause restricted the inter-brand competition by restricting both the market entry and the catch-up competition for STIHL’s competitors. Further, the non-competition clause had the effect of restricting intra-brand competition among the different STIHL service stores.
Although selective distribution agreements may be exempt under the (new) Vertical Block Exemption Regulation, STIHL could not rely on the exemption because it exceeded the relevant market share threshold of 30% in the critical markets, the FCO found. Further, the FCO held that the requirements for an individual exemption were not met in this case either.
Given the popularity of the brand STIHL, the comprehensive use of the additional agreement and the signalling effect it had, the FCO considered it necessary to establish the violation of antitrust laws even after the practice had already been shut down. In addition, the FCO noted that it had detected further structures on the market for hand-operated motor tools that pose a threat to competition and that it would further monitor the market.
Companies that do not adequately monitor internal procurement procedures risk cartel proceedings and fines. This is underpinned by a decision recently announced by the German FCO (Link). According to the FCO, the proceedings concerned illegal agreements between a now liquidated Saarland-based industrial construction company, a steel group and a construction group that took place from early 2010 until March 2014. The FCO has now imposed fines totalling EUR 12.5 million on the steel group as well as the construction group.
What is special about this case is that the person in charge of the industrial construction company in Saarland is alleged to have entered into both forbidden vertical and horizontal agreements with regard to industrial construction contracts with the representatives of the other companies. Andreas Mundt, President of the FCO, on this constellation: “This case breaks new ground for us as this is the first time, we have uncovered an agreement concluded within the context of an award procedure in which both the bidders and the contracting party participated.”
According to the FCO, the aim of the vertical agreements was to make sure that the contracts were awarded to the Saarland-based industrial construction company or, in the absence of interest on their part, to the other construction group, provided that both companies cooperated. As a result of the vertical agreements, the steel group, for example, called for fewer bids than provided for by the group’s internal procurement rules or only called for bids from companies that were obviously not able to submit competitive bids. At the same time, horizontal bid rigging was agreed with the representatives of the competing construction group to allow the representative of the Saarland-based industrial construction company to manipulate the tenders.
The fine imposed on the steel group has become final. The construction group has meanwhile appealed the order imposing the fine. The appeal will be decided by the Düsseldorf Higher Regional Court. Both companies filed a leniency application and contributed to the clarification of the facts. The steel group also agreed to a so-called settlement.
A cooperation with antitrust authorities and the implementation of effective compliance measures can spare companies from cartel fines. This is underpinned by the recent Orderman case which concerned the illegal price fixing through the determination of minimum advertising prices. The FCO, although affirmative of a violation of antitrust laws, chose to terminate the proceedings because there had been no systematic conduct and the company involved had shown compliance efforts (case no. B7-35/22).
The Austrian Orderman GmbH is a manufacturer of digital cashier and order systems for restaurants. A German company that distributes Orderman products had filed a complaint with the FCO concerning Ordermans requirements regarding minimum advertising prices. According to the FCO, Orderman had erroneously assumed that the setting of minimum advertising prices – contrary to the setting of minimum sale prices – did not constitute so-called hardcore restriction within the meaning of the Vertical Block Exemption Regulation and, thus, did not violate antitrust law.
However, the FCO disputed this assumption and held that the requirement to not advertise products at prices below the recommended retail price constituted a hardcore restriction. It argued that minimum advertising prices restrict advertising communication of individual retail prices and, therefore, remove a significant factor of price competition among retailers. The Commission, too, has recently confirmed expressly in its new Guidelines on vertical restrictions (recital 187 lit. d) and recital 189) that provisions regarding minimum advertising prices restrict competition.
Orderman cooperated to clear up the allegations raised in the proceedings. According to the FCO, no indications of systematic conduct were found. Also, Orderman ordered respective compliance trainings for its employees and issued a statement to its distribution partners. As a consequence, the FCO terminated proceedings without imposing a fine.
The EU is continuing to tighten its package of sanctions against Russia. The sixth sanctions package, published by the Council on 3 June 2022, bans the purchase, import or transfer of crude oil and certain petroleum products from Russia to the EU (Link). The ban is not to apply immediately, the phasing out will take between six (crude oil) and eight months (other refined petroleum products). In addition, temporary exceptions are to apply to certain EU member states. Furthermore, the Council has imposed sanctions on a further 65 individuals and 18 organisations (Link). Finally, the Council excluded three more banks from the SWIFT-System, suspended the broadcasting activities of three more Russian state-owned media companies in the EU, banned the provision of accounting, public relations and consultancy services to Russia, and expanded the list of persons and entities subject to export restrictions concerning dual-use items and the list of goods and technologies that could contribute to the technological improvement of the Russian defence and security sector.
The Chatham Partners’ EU/COMP-team is specialized in complex issues in the areas of EU and German competition, State aid and public procurement law and has extensive practical experiences in these fields.
We would like to thank Sonja Maria Brücker and Jonas Versen for their valuable support in the compilation of this newsletter.